European vitamin makers must reduce their production costs and develop more cost-effective technologies to have a chance of resisting the price pressure applied by Asian manufacturers, says Frost & Sullivan.
In a report out this week, the market researcher sets the 2004 revenue from vitamins, A, C and E in Europe at $394.3 million (€324.1 million), and predicts that it will reach $534.1 million (€439.06 million) by 2011.
"While increasing health awareness and expanding application segments have contributed to continued growth, European vitamin companies may have to understand that hard-hitting and increasingly competitive times have arrived in many markets," said research analyst Vivek Upreti.
"This essentially calls for a pro-active approach, wherein they have to take immediate action to keep pace with the times, or wait and watch their profits fall."
Improvements in the stability of vitamins A, C and E, and their inclusion in more and more products, especially in the cosmetics and skin care sector, have contributed to the growth, according to the report.
But Asian manufacturers have been putting the squeeze on Euro players for some time, since they have lower overheads, cheaper labour, better exchange rates and government subsidies.
As well as developing money-saving processes, the new report recommends that European companies could also seek out cheaper raw materials, and take a long, hard look at their supply chain management to ensure it is efficient.
In the first half of the current fiscal year, number two vitamin-maker BASF saw income from its fine chemicals unit plummet to €1 million compared to €79 million in the same period of 2004. The company explained the fall as being primarily due to a decline in the margin for lysine, but operating income in the second quarter was also hit by a €26 million restructuring charge for vitamin C - its second biggest volume product.
Chinese vitamin C was selling for as little as €2.80 per kg in May, almost its lowest point.
Earlier this year BASF also streamlined operations at its Ludwigshafen plant, a move expected to reduce costs by €480 million per year.
DSM, however, has signaled that it is taking the approach of 'if you can't beat 'em, join 'em' where Asia is concerned. Earlier this month it announced the opening of its first research and development centre in China, giving the Nutritional Products division production resources in the region.
The Dutch company has recently entered into joint ventures with Chinese vitamin makers, and this week is expected to reveal details of a joint lab with Fudan University that may provide a link to Nutritional Products activities.
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